Who Is Responsible for Escalating Student Debt?
Student debt is on the rise. The average student loan debt is now more than $23,000—and over two-thirds of students these days have some sort of debt to manage. There would be nothing wrong with that, if students were clearly making enough after graduation to pay off their debts. But data indicates this isn’t true—default rates are on the rise as well, up to 7.2% by 2008—up from 6.7% the year before.
Talk to a small selection of college students, and you’ll hear plenty of first-hand stories about heavy debt loads, slim job prospects and tiny paychecks. Many college students these days are competing with more experienced job-seekers, even for entry-level jobs—and many are delaying adulthood to cope with their debt, putting off marriage, childbearing and home-buying. This can have severe consequences for the economy as a whole.
There’s no question that many college graduates are stuck with heavy student debt, and without the good job prospects they were promised. But are students victims of greedy colleges and lenders—or are they at fault for their own problems? Who, in the end, is responsible for student debt?
At the time they enter into their first student loan agreements, many college students are minors—or just turning eighteen. If they make bad student loan decisions at this age, it can be chalked up to inexperience. But parents are part of this process too. Are parents at fault for putting their kids in impossible financial situations?
It’s not unusual for parents, especially parents who didn’t go to college themselves, to believe that a good school means a good job with a great salary—and to assume the child will earn enough to pay back the loan. They don’t want to feel they’re holding their child back.
But parents, because they’re more financially experienced, could do a lot to guide students toward taking fiscal reality into account when choosing a school. Parents should go in knowing exactly how much debt they can afford to take on on their child’s behalf—and discuss this beforehand. If the school is going to require more than that, the child should know how much their own contribution should be.
If that contribution is high, parents should be able to ask the difficult questions nobody wants to ask. How much will the child’s degree be likely to earn? How much per month will the child have to pay? What will that mean financially? How will that debt load restrict the child’s choices out of college? Does the student’s degree choice correlate to higher earnings, or not?
Parents are often caught up in their pride in their children if they’ve been accepted to n exclusive school—and are often drawn into making the promise to “make it happen,” no matter what. But this kind of thinking can lead to heavy debt loads later.
Parents can, if properly informed, be the first line of defense for
their students against debilitating student debt.
Some people believe that students have no right to complain—they took on this debt voluntarily, and why should they be surprised at the outcome? But a typical traditional college-age student isn’t best equipped to understand the consequences of taking out student loans. Many students are optimistic about the future—and it’s common knowledge that a college education is worth any price. Expecting students to be responsible for complex financial decisions without any education on the subject isn’t realistic.
Still, students will have to consider loan issues and be their own advocates in situations where the college won’t give them realistic advice—and their parents are swept away by the idea of their child attending a prestigious school. Instead of being swept away by the “college experience,” students should ask questions about the average earnings of the school’s graduates in their chosen major, percentages of students in their field who get jobs directly out of college, and the extent of alumni network support after college. And students shouldn’t just ask admissions personnel, whose jobs may depend on giving positive answers. They should also talk to real alumni, and not those who’ve been handpicked by admissions.
The reality is this: a college education might open doors, but a heavy debt load closes them. Students need to look beyond their graduation and consider how many things they’d like to do right out of graduation—that a heavy debt load might prevent. This realistic way of looking at the future may help students make college admissions decisions based on affordability and emotional factors.
Students and parents are often criticized for complaining about their debts—when it’s assumed that they knew what they were getting into. But schools make it difficult for parents and students to assess the risk accurately. Admissions counselors can adopt a very hands-off approach to advising students on debt. Ostensibly it’s under the belief that it’s a free country, and students should be allowed to choose what school to go to. But often students and parents need someone in authority to explain the consequences of their financial decisions in a realistic way. And admissions counselors typically don’t tell families outright that they can’t afford to go to their school.
Historically, lenders have been only too willing to approve students and parents for loans they later found they couldn’t afford. While it’s become more difficult to get student loans as the economic crisis has worsened, the strictures may still not be tight enough.
So who is really at fault when it comes to student debt? In reality, it’s probably all of the above. The unwillingness of schools to say no to students who are willing to take out loans to attend; the idealism of parents and students; and lenders’ low standards have all come together to create the current crisis. Students and parents can protect themselves by being realistic—and refusing to be swept away by a school’s slick marketing package or prestige.
Student Debt: Denying the American Dream - YouTube.com
WBUR.org: The Education Bubble, Part 3: Shared Repsonsibility to Shrink Student Debt
NYTimes: Top Obama Priorities Collide as Student Loan Legislation May Be Attached to Health Care
MSN Money Central: How Much Debt is Too Much?
WBUR.com: Education Bubble, Part 1: Sky-High Debt is Overwhelming Burden
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